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Monday, February 25, 2019

With the federal election campaign being fought over which side will do the better job of re-regulating the banks, the energy companies and business generally, big business seems to be going through the stages of grief. It’s reached denial.

According to the Australian Financial Review, the Business Council of Australia is most put out that the Morrison government has yielded to pressure from Labor and some Nationals to support a bill making it easier for smaller businesses to take legal action against big businesses.

Apparently, Scott Morrison and his lieutenants had the temerity to make the decision without giving the council an opportunity for private lobbying.

Which would have been intend to avoid “harmful unintended consequences,” including any possible drag on the economy. Of course.

Apparently, it’s just another instance of the growing level of “business bashing” in this campaign.

Sorry, guys, you’ve got to have a better argument than that. Accusing your critics of business-bashing or teacher-bashing or bank-bashing is what you say when you haven’t got a defence and are succumbing to a persecution complex.

It makes you and your mates feel better, but that’s all.

It’s a refusal to accept any responsibility for the bad performance of which people are complaining. Since it’s entirely the fault of others – usually, the government – any attempt to make me and my mates bare our share of responsibility can be explained only by ignorance and malice.

Such denial offers big business no way forward. Much better to admit there’s a fair bit of truth to the criticisms and accept that your performance will have to be a lot better.

The Business Council needs to admit to itself that this is not some passing phase of populist madness, it’s the end of the line for the “bizonomics” that micro-economic reform degenerated into – the belief that what’s good for big business is good for the economy.

The simple truth is that, when you go for years abusing your market power, the electorate eventually wakes up and hits back, threatening to toss out any government that isn’t prepared to set things to rights.

Now the scales of economic fundamentalism have fallen from our eyes, who could doubt that big businesses use their superior power – including their ability to afford the best legal advice – to unreasonably impose their will on smaller businesses, just as they impose incomprehensible and utterly non-negotiable terms and conditions on their customers. Like it or lump it.

One of the greatest weaknesses of “perfect competition” – the oversimplified model of market behaviour that permeates the thinking of economists, both consciously and unconsciously – is its implicit assumption that the parties to economic transactions are of roughly equal bargaining power.

In the era of oligopoly, however – where so many markets are dominated by four or even two huge corporations - nothing could be further from the truth.

It’s thus perfectly reasonable for governments to intervene in markets to bolster the bargaining power of the smaller and weaker parties – whether employees permitted to bargain collectively and go on strike, small businesses helped to seek legal redress from much bigger businesses, or customers protected from misleading advertising, high-pressure selling and other abuses.

It’s because economists’ thinking is so deeply infected by their model’s unrealistic assumptions that they fell for the notion that merely providing consumers with more information on labels and in “product statements” (quickly sabotaged by being turned into pages of legalese) would protect them from exploitation.

Though oligopolies have existed for decades, economists have put remarkably little effort into studying how they work and, more particularly, how they can be regulated to ensure the economies of scale they have been designed to capture are passed through to their customers.

The trouble is that oligopolies do all they can to avoid competing on price.

A part of this is offering a range of products that are almost impossible to compare with other firms’ products.

In the complex, busy world we live in, it’s utterly unrealistic to expect ordinary consumers to devote hours of precious leisure time to checking to see whether their present provider of bank accounts, credit cards, mortgages, mobile phones, electricity, gas and even superannuation is quietly taking advantage of them.

This is the case for government regulation to impose standardised comparisons and default products, statutory guarantees, legal obligations to act in the client’s best interests, and much else.

The other thing we’ve learnt in recent times – from the banking inquiry and many other examples – is that if businesses large and small are confident they won’t get caught, there’s no certainty they’ll obey the law.